I am foreclosing on a house as the second mortgage, do I have the legal authority to assume the first mortgage?
I am foreclosing on a house as the second mortgage, do I have the legal authority to assume the firs
I am not aware of any legal authority to assume the loan. Under the terms of a standard Deed of Trust the lender can accelerate the loan due date when the beneficial interest in the property has transferred. The reaction of the first would depend largely on who the lender is on the first. A private beneficiary would probably respond differently than a larger lending institution. If you continued to make the payments on the loan I couldn’t image a lender calling the note and foreclosing on the property but that is certainly their option.
While you can not assume the loan, you can advance payments to the first to protect your position while you foreclose. But whether you foreclose or take a deed-in-lieu, Michelle is right, the 1st doesn’t have to accept payments from you because of the due on sale clause. That said they may be perfectly happy to take your payments… I’ve done this a number of times as a foreclosure purchaser and have only had one first refuse to take my money. You just can’t count on it.
Sean is correct. There is lots of case law and some decisions are convoluted. It sometimes is held that IF the second was recorded concurrently with the first (like a seller carry back) - in that case the first was aware of the second and may have to accept payments even after the second becomes the owner. There is no question that the 2nd can advance to the first.
In olden times, when first lenders could afford to be nasty, they even tried to prevent owners from borrowing on the property afterwards. That usually didn’t fly. 2nd holders who foreclosed had to resort to a little subterfuge - like not recording their Trustee’s Deed and/or making sure the insurance policy presented to the first didn’t reflect the 2nd as an owner. As Sean said, lenders, now, are glad to get money from who/where ever they can.